Founded in 2000, FalconStor is one of the companies that pioneered the current generation of advanced data protection software such as Virtual Tape Library (VTL), Continuous Data Protection (CDP) and Storage Virtualization. In 2007, after seven years of steady growth in shareholder value, the price for a share of FALC hit an all-time high of $13.90, and FalconStor's market cap almost reached $600 million. By November of 2008, FALC slid to an all-time low of $2.15--but the company continued to build on the same blueprint until the sudden resignation in September, 2010, of longtime CEO, ReiJane Huai.

The company is now undergoing an extreme makeover that started at the top. After serving as chief strategy officer, Jim McNiel was promoted to president and CEO. Understanding the company's strengths, weaknesses, opportunities, and threats; Mr. McNiel moved quickly to rally the FalconStor team around new corporate values and to improve accountability.

The next move for Mr. McNiel's team was to define a company vision that will guide their product and business development today, and for years to come. Mr. McNiel calls that vision, "building an on-ramp to the cloud." That on-ramp is a management layer which allows their suite of data protection software to be delivered as a service by corporate IT organizations from their private cloud. The new technology is being developed under the Bluestone project. I buy the vision because it represents an intersection of leading edge technology feasible for FalconStor to deliver, and what customers will need in the future.

In parallel, the FalconStor team is addressing the short-term need for profitable growth by winning new OEM deals while building a channel business. Recent successes include FalconStor's just announced deal with Hewlett-Packard. HP Enterprise Services will be using FalconStor Network Storage Server (NSS) as part of its newest Business Continuity & Disaster Recovery (BCRS) service offering. The HP service is designed for businesses with mid-range systems. A typical customer is looking for a third-party disaster recovery service that recovers faster than traditional tape-based systems, but more economical than high-end array-to-array mirroring or replication. The new FalconStor-NSS-based service allows HP to support heterogeneous storage environments - enabling replication from any third-party array supported by FalconStor NSS into HP storage systems situated in BCRS centers around the world.

HP began rolling out this service at the beginning of this month on a worldwide basis. They have 60 datacenters in 40 countries where this offering can be hosted. HP will offer this service under a utility-based model ($/GB/month). According to FalconStor, HP will provide Level 3 support and handle both the customer premises and HP BCRS data center deployment. FalconStor also said that HP is initially targeting customers who have under 15TB of production data to be protected or those with heterogeneous environments.

For the channel, FalconStor is tuning their software to maximize the profitability of their partners. Mr. McNiel believes the company will be successful in the channel if, as he says, "after 3 years, we do nothing more than achieve the industry's highest quality and reliability."

In this episode of Extreme Makeover FalconStor Edition, the company is left with a new blueprint, and moving quickly to build-out the plan. Fortunately for FalconStor employees, customers, and investors, the company has a clear vision and is loaded with a broad portfolio of rich storage software technology. It is also worth noting the company has a strong cash-position and no debt. If FalconStor can navigate the transition to a more channel-oriented product model, I expect their future trajectory to be up and to the right. If Bluestone comes to market with the excellent functionality, quality and reliability; the company has a bright future as a leader in service-oriented data protection.

Frank Berry is CEO and senior analyst, unified networking practice, at IT Brand Pulse. He is a 30-year veteran of the IT industry, and has held senior executive positions at storage vendors such as QLogic and Quantum.

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